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Hyland urges slow steady approach for CUs taking on MBL

ALEXANDRIA, Va. (11/19/09)--While she supports credit union involvement in commercial member business lending (MBL), National Credit Union Administration (NCUA) board member Gigi Hyland has urged credit unions to “go slowly” and do their “homework” to ensure that they have appropriate risk management as they develop their loan portfolios. Panelists during the NCUA’s Wednesday MBL web cast said that the best way to ensure that commercial MBLs are executed safely is by following existing MBL rules. While federally-chartered credit unions are not required to have risk rating systems, they are effective when they are used, NCUA Region IV Problem Case Officer and panelist Linda Vick said. When establishing a risk rating system, credit unions should ensure that their ratings “shape or reflect” the nature of their lending decisions, Vick added, saying that credit unions should not adopt a particular form of risk rating system simply to appease examiners. Addressing examination, NCUA MBL Program Officer Erika Eastep advised credit union officials to consult NCUA opinion letters, AIRES exam questionnaires, appendix 10A of the NCUA’s examiner guide, and section 107A of the Federal Credit Union Act to gain insight on what examiners will look for during their inspections. The panelists also detailed the NCUA’s MBL exam process, which includes discussion of strategic goals and objectives department structure, and credit union policies and procedures. The Credit union’s credit memorandum, which is also reviewed during the examination process, should be a standalone document that details what management was thinking when they decided to execute the loan, the panelists added. In preparation for examinations, credit union officials should review “every single loan” in their portfolio on a regular basis, Eastep added. While commercial member business loans can often be complex, the “key” for credit unions looking to engage in these loans is “due diligence, a strategic planning process, and knowing which loans you can do and how you can do them,” Vick said. The NCUA has not provided an official position on H.R. 3380, the Promoting Lending for America's Small Business Act, would increase the MBL cap to 25% of a credit union's total assets, would raise the "de minimis" threshold for a loan to be considered a "member business loan" to $250,000, and would exempt loans made to non-profit religious organizations as well as loans made in qualified underserved areas from the cap. However, Hyland said that the MBL cap is not a statutory issue, and should instead be handled by regulatory action.